The case of Mr Hu of Rio Tinto in China, detained on ''spying charges'' demonstrates once again that doing business in China is a complex and risk-laden undertaking. I have made several responses in the media to this particular case - some relevant links are indicated below following the text of an interview on crikey.com.au (http://www.crikey.com.au/2009/07/10/the-art-of-doing-business-and-avoiding-trouble-in-china//).
The art of doing business (and avoiding trouble) in China
Mike Berrell is a former Professor of Work Organisation at RMIT University and an expert in China and the global economy. He has been working on and off in China for the past 15 years, and currently consults for multinational corporations operating in China. He is co-editor of the book Business Networks and Strategic Alliances in China. He talks about the art of doing business in China and avoiding trouble:How is it different to do business in China than in, say, Australia?The principle thing to keep in mind is that any initiative in China is based mostly on relationships. Personal relationships are of fundamental importance. So you have to make sure those relationships are established before you make any commitments, whether that’s intellectual or capital. The companies that have run into trouble have primarily been those that have gone in without those connections already in place.Do you think that’s been the case with Rio Tinto?Rio Tinto is a very large company, and I’m sure they will have done their homework. But there certainly have been cases where companies have gone in on the assumption that their prominence in the western economy will set them up, and that doesn’t always carry the day in China.Stern Hu has been living in China for many years, so it seems unlikely he would be unaware of the nuances of conducting business in China. Is it possible that Hu has somehow been acting against China’s interests?... it’s possible, but people don’t tend to deliberately act against the interests of China. Just because they don’t understand, they quite often put themselves in that situation. The thing you have to remember is that history is yesterday in China. People are still talking about things that happened 20 or 30 years ago.People talk about China opening up … but you only have to scratch the surface to realise that you’re dealing, in some ways, with a very traditional society with very conservative views.There’s been a lot of speculation that this is about China flexing its international muscle to the rest of the world in its place. What do you make of that theory?That might well be the case. It’s been fifteen years since China has come forward to rattle the sabre, but I think it probably isn’t that. I think there are probably other issues involved. And we may only start to find out about those two or three months down the track. The motivations of the Chinese are really made on the day. Sometimes they may not always think about what the consequences of an action will be one or two years down the track, and that’s something that many western business people find bewildering.Do you think Kevin Rudd’s softly-softly approach is the most appropriate way to handle the Hu situation?It’s the only way to handle the situation. To go full steam ahead, as the western mindset might encourage you to do, that never works in China.How much of Hu’s arrest do you think may have been about saving face?The thing about China is that face is the most important thing. You have to be very cognitive that if a deal falls apart, if the wheels fall of the wagon, it has to happen in a way that everyone comes out saving face.Are westerners working in China aware of the risks — that their phones may be tapped or that their emails may be intercepted?In my view, many western business people are not aware. They don’t have any induction into the way that China works, they just go in and think that because they’ve been living there for one or two years they understand how it works, and they don’t. It’s important to have that maintenance [when dealing with China] – the chief of the company needs to go on regular visits, even if they’re not directly involved, just to show that they’re still interested, and so on. It’s very important to know who your counterpart is, and also to know who the decision-maker is, because it’s not always the director who’s making the decisions.***********************
ABC RADIO / THE WORLD TODAYMonday, August 10, 2009 12:34:00 reported by Elanor Hall (http://www.abc.net.au/worldtoday/content/2009/s2651310.htm)
RIO TINTO REFUTES CHINA SPY CLAIMSELEANOR HALL: The mining giant, Rio Tinto, is today denying allegations that it's been spying on China for six years, and that its employee, the now-detained Stern Hu, helped extort $122 billion from the industrialising nation. The claims were made in a report by China's National Administration for the Protection of State Secrets which was translated by a Western journalist. Mike Berrell is a business consultant to an engineering firm that operates in China. He's been travelling there in recent days and says the allegations are a smokescreen. He joined me on the phone from Abu Dhabi a short time ago. Mike Berrell, how worrying is the use of the term 'spying' in terms of the Stern Hu case on semi-official Chinese websites? MB: Well I think that it has to be taken in context in that what is classified as a state secret in China is quite different from what is classified in Australia and other Western countries as state secrets. We would normally tend to think of anyone that's involved in the stealing of state secrets as being involved in traditional types of espionage. Where in China, the state security bureau has a very broad definition of what constitutes a state secret. And for all intents and purposes, it is really anything that is going to be significantly disadvantageous to the Chinese Government.EH: Are the Chinese authorities though trying to send a message here, by using this term 'spying' on their websites?MB: I think they probably are. They're trying to hit home very clearly the case that when you operate in China you have to operate by Chinese laws and they have tended to be a little bit heavy-handed in this case I think. It's been at least 15 years since we've had a similar type of event. So perhaps there is a message here in business, but again this is what came to our knowledge on the 5th July. So it's been only a couple of weeks into the process. I'm hoping, from my point of view, that it should be resolved in the next two to three months.EH: And what do you make of this figure of a $122 billion, more than Rio's total iron ore trade with China over the period.MB: I think that's again a message that this is Chinese view of the perceived damage that this has caused the industry over a period of time, a projected period of time. But you've also got to remember that this is a strategic industry for the Chinese and so they're going to of course be a little bit more creative with the figures that they're offering about the damage that this case has caused. And it also helps them, that it perhaps saves a little bit of face on the Chinese side to justify the actual course of action that they took.EH: So is this a case of Stern Hu just doing his job too well, or has he been caught in a wider espionage crackdown? I mean we've seen China cracking down on corruption in recent years.MB: Yes, look, this is something that of course being on the outside, looking in, you wouldn't know. But the way that you do business in China and of course there are a lot of people who don't really understand doing business in China, but it does involve network, relationships, it does involved understanding in part of what the other side's thinking and of course the most important thing for negotiating with the Chinese is that both sides maintain face during negotiations. So I suspect that something else has come adrift in these negotiations and it may well be that the Chinese Government have been looking at the people who Stern Hu's been dealing with, quite separately from Mr Hu. So again, being on the outside looking in, it's very difficult to know what's going on. But a way of doing business in China is working with all your network partners and gathering intelligence and you could be right that Mr Hu has done his job very well.EH: If this is China cracking down on corruption, is that ultimately a good thing for trade with the West and for Western companies, or is it scaring off foreigners?MB: No, I think in the long term it's got to be in the best interests of China to bring its index rating down as a corrupt country. Over a number of years, especially in intellectual property rights, it's been very keen to increase its perception in the West as a legitimate country in which to do business. So I think in the longer term, leaving aside the particularities of Mr Hu's case and Rio Tinto, in the longer term, this type of move against corruption will be welcomed by Westerners doing business in China.EH: In the interim, the businessmen that you're speaking to, are they watching this case with fear?MB: I wouldn't say with fear, with a bit of trepidation, I've had a number of calls from my clients who have asked me to review their current negotiation stances in China. In many cases I think people are just stepping back a little bit and waiting to see how this case is going to be resolved. Because it's in the best interests of all parties concerned for this to be resolved in a way that is open and a way that it's legitimate, but also a way that both the Chinese and Australians come out feeling yes, the best thing has been done. So I think in the longer term, yes, that people will move back into China again, perhaps with renewed confidence, but in the short-term they're sitting back and just saying, let's just wait for a minute and see what's going to happen over the next eight to 10 weeks.EH: Mike Berrell, thank very much for joining us.MB: Thank you, bye, bye.
EH: That's a China business analyst Mike Berrell.http://mpegmedia.abc.net.au/newsradio/audio/20090710-chinam.mp3
